Moody's reviews Tata Power rating for possible downgrade

NEW DELHI: Moody's today said it was reviewing the corporate rating of Tata Power for possible downgrade, primarily due to bank debt related to the company's Mundra ultra mega power project in Gujarat.

The rating action reflects material covenant breaches on bank debt associated with 4,000 MW Mundra UMPP and questions relating to the project's long-term impact on its financial profile, absence of changes to tariff structures, Moody's Investors Service said in a statement.

Covenant generally refers to an agreement between two parties.

Moody's noted that covenant breaches do not constitute a payment default.

Commenting on Moody's rating action, Tata Power Executive Director (Finance) S Ramakrishnan in a separate statement said that to support CGPL's cash flows, the company has been in advanced discussions with the lenders to finalise structure for transferring coal SPV dividends.

To provide protection to CGPL and support its cash flows, Tata Power has already proposed to transfer atleast 75 per cent of its equity interest in the Indonesian coal mines and also continues to evaluate other alternative options.

"The matter is under consideration by the lenders for approving waivers in certain cases. Given the technical nature of the covenant breaches comprising mainly non cash entries like impairment and forex costs, we believe our request should get favourable consideration.

Ray Tay, a Moody's Associate Vice President -- Analyst and lead analyst for Tata Power -- said that CGPL is in the process of obtaining waivers from several financial institutions for the covenant breaches, but the issue may take several months to resolve.

"While waivers are being negotiated, TPC will be subject to curtailment of new draws once it reaches the currently approved level of 83 per cent of the project facility, thereby introducing greater liquidity risk, absent additional bank waivers," Tay noted.

According to the statement, Moody expects to conclude its review in about one to three months. (